The High Court has handed down a decision which will be welcomed by both lenders and valuers (Rehman & Rehman v (1) Santander UK Plc (2) BNP Paribas) .
The High Court has re-affirmed settled legal principles in a summary judgment application: the banker/customer relationship gives no automatic rise to a duty of care or fiduciary duty, and an "all monies guarantee" will be held to be just that if expressly described as such.
The Rehmans were directors and shareholders of Rosewood Care Services Ltd (Customer), which operated two care homes. The Customer was in the process of refinancing with Santander UK Plc (Santander), and were represented by Mr Shafiq Rehman (Shafiq) in the negotiations. As part of the refinance, Santander instructed BNP Paribas (BNP) to conduct valuation reports for the two care homes which were intended to be charged as security for the new facilities.
BNP conducted and provided the valuation reports to Santander, valuing the two care homes at £3.65m. Santander's credit sanction had required a valuation of £3.35m for the two care homes as one condition in order to advance facilities to the Customer. On 13 May 2011, Santander's representative emailed Shafiq, stating that the valuations were in the post to him and that as the valuation was above £3.35m that was "…a tick in that box" for the credit sanction requirement.
Financial facilities were made available to the Customer, which were accepted by the Rehmans on behalf of the Customer in their capacity as directors, including a fixed rate £2m loan facility as a "hedge". In addition, the Rehmans provided Santander with guarantees by deed for "all monies and liabilities" owed by the Customer, subject to a limit of £2m.
In 2013, the Customer fell into default and in June 2014 was placed into administration. After the care homes were sold by the administrators, and the net sale proceeds applied to reduce the Customer's liability to Santander, a shortfall balance remained. Santander demanded repayment from the Rehmans under the guarantee, which the Rehmans denied liability, on the basis that a material variation of the guarantee had occurred when the Customer entered into the "hedge".
The Rehmans brought claims against Santander and BNP to rescind the guarantee or claim damages / equitable compensation against:
1. Santander, on the basis that (1) Santander owed the Rehmans a duty of care to instruct a competent valuer (2) Santander impliedly misrepresented or impliedly negligently misstated that the valuations were true and fair estimate of their market value and (3) in breach of a fiduciary duty Santander failed to advise the Rehmans to obtain their own independent valuations; and
2. BNP, on the basis that BNP owed the Rehmans a duty of care in respect of the valuations.
Santander made a counterclaim against the Rehmans for the balance owed under the guarantee. Both Santander and BNP brought summary judgment applications pursuant to CPR 24.
The court awarded summary judgment in favour of both Santander and BNP (although the question of quantum on the guarantee liability was to be further assessed). Whilst the court noted that the burden of proof for a respondent defeating a summary judgment is a low one (a respondent needs to show only that there is some prospect of success, which is better than merely arguable, even if improbable) it held that there was no evidence from the claimants to show any reason why the claim could not be disposed of without the need for trial. In particular, the court decided that:
1. There is no duty of care owed by a bank to guarantors when a lender forwards on a valuation obtained for internal purposes to a customer in a commercial transaction;
2. It would be unreasonable to conclude that by merely passing a valuation report to an intended borrower or guarantor would amount to an implied representation by the lender that the accuracy or reliability of the valuation can be relied upon by the borrower or guarantor;
3. The relationship between a banker and its customer is not a fiduciary relationship;
4. Whether a guarantee is an "all monies guarantee" is a simple question of construction, and a guarantee will be held to be an all monies guarantee if that is clear on the face of it; and
5. A valuer will not be liable to a third party in relation to the valuation when it is clearly addressed to an intended recipient and reasonably excludes liability to any third party.
The decision, in a summary judgment application context, demonstrates that courts will robustly apply settled law to dispose of claims at an early stage when appropriate to do so and faced with no other evidence to the contrary as to why a claim should proceed to trial. Further it is a useful reminder of the principles which will be applied by the court in a summary judgment application, and how such powerful applications can save both time and cost to litigants when deployed correctly.
Addleshaw Goddard LLP has a wealth of experience acting for lender clients defending claims of alleged breaches of duty of care and fiduciary duties, as well as summary judgment applications. If you wish to know more about this decision or, alternatively, to discuss strategy for cases involving breaches of alleged duties or the merits of summary judgment applications then please contact either Ben Lowans or Ben Oliver.